The Inflation Research Digest is a quarterly newsletter published by the Cleveland Fed’s Center for Inflation Research. It highlights research papers from the Federal Reserve System and other institutions, announces calls for papers for workshops and conferences, and provides links to inflation-related data.
The authors construct a novel, real-time indicator of inflation uncertainty consisting of a news-based measure that is derived from textual analysis of newspaper articles and a market-based measure that draws on prices of options on Exchange Traded Funds and commodities. Inflation uncertainty spiked during the Great Depression, World War II, the 1970s and 1980s, after the Global Financial Crisis, and in the post-pandemic period. The authors show that heightened inflation uncertainty is associated with higher real asset prices but lower nominal asset prices. Increases in inflation uncertainty are followed by declines in private investment and real economic activity.
Source: Acharya et al. (2025). Note: The figure shows Composite Inflation Uncertainty (CIU) which is constructed as the first principal component of News-based Inflation Uncertainty (NIU) and Market-based Inflation Uncertainty (MIU).
by George-Marios Angeletos, Joao Guerreiro, and Dalton Rongxuan Zhang
The authors distill the common essence of some popular alternatives to Full Information Rational Expectations (FIRE) and show how this common essence can be accommodated in a tractable manner in the Representative- and Heterogeneous-Agent New Keynesian models.
Source: Angeletos et al. (2025). Note: This figure depicts one scenario in a policy experiment for unanticipated monetary policy shocks under bounded rationality. It shows the response of consumption to the news announcement in period 0 of a persistent interest rate cut starting 16 quarters later. The solid blue line imposes FIRE, the dashed red line imposes the assumption that everyone believes that a fraction λg of the population know about the news, and the dotted purple line imposes learning. The left panel considers the case of a Representative-Agent model; the right panel plots the response in a Heterogeneous-Agent model.
